D-St bulls, rupee regain ground amid global oil price rollercoaster

Mumbai: Indian stocks Tuesday rebounded from multi-month lows, tracking gains in risk assets across Asia, while the rupee climbed 53 paise against the US dollar after crude oil prices slumped about a quarter – or nearly $30 a barrel – over two days from levels not seen since the earliest days of the Ukraine war nearly four years ago.

The rupee closed at 91.80 per dollar amid likely RBI interventions, prompting traders to buy the dip. It had previously closed at a record low of 92.33. Oil prices plunged nearly 10% from their panic-driven peak a day earlier, but were paring losses as of press time.

Risk assets mirrored the currency’s smart recovery. The NSE Nifty climbed 1% to 24,261.60. The BSE Sensex advanced 0.8% to 78,205.98.

Sectoral Indices Up
Both gauges had fallen around 3% over the past two sessions.

“Slide in crude prices yesterday [Monday], after touching $119, and further falls on Tuesday led traders to cut their bearish bets,” said Siddarth Bhamre, head of research, Asit C Mehta Intermediates. “The West Asia conflict had led to the build-up of ‘panic shorts’ in the system, which got squeezed out as Donald Trump indicated the war is near its end.”
Across Asia, South Korea jumped 5.4% while Japan gained 2.9%. Hong Kong and Taiwan climbed more than 2% each. China advanced 0.7%.
Analysts said that while the rebound could extend, investors remain cautious given the volatility in crude oil prices on account of the conflict in West Asia.
Some uncommitted investors with higher cash holdings are also likely to have deployed money since the declines offered decent entry points, said Bhamre.

All sectoral indices climbed except the IT and oil & gas indices. The Nifty Auto index jumped 3.1% and Nifty Consumer Durables index gained 2.7%. Bank Nifty advanced 1.6% and the PSU Bank index moved 2.2% higher. “Some weak hands squared off their short positions after Trump said that the war could wrap up soon. It also led to some long build-up in outperforming sectors, such as auto and pharma,” said Rajesh Palviya, head of technical and derivatives, Axis Securities.

The rupee, meanwhile, traded in the range of 92.19 per dollar and 91.72 per dollar. Brent crude oil prices cooled to around $93 per barrel, from about $119 per barrel Monday after the US President said “the war is very complete.”

The dollar index, too, decreased to 98.5 from nearly 100 levels the previous day, strengthening Asian currencies.

‘Cautious Optimism’
Still, fuel price fluctuations remain the key driver for the rupee’s trajectory, and the pace of deprecation would increase if oil prices trade above $100 per barrel, traders said.

“With crude prices cooling and the dollar slightly weaker, sentiment for the rupee has improved. I expected the trading range to remain between 91.25/$1 and 92.60/$1,” said Jateen Trivedi, currency research analyst at LKP Securities. “Crude price movements and the direction in the dollar index would continue to guide the currency’s near-term trends.”

Energy prices remain a major concern for risk assets, too, with analysts explaining a lower-than-expected decline in the fear gauge to suggest that a spike in oil prices could dent stocks.

The Volatility Index (VIX) dropped 19.1% to 18.9 – indicating that traders tempered risk expectations.

Foreign portfolio investors sold shares worth ₹4,672.7 crore on Tuesday. Their domestic counterparts bought shares worth ₹6,333.3 crore. In March, global investors dumped stocks worth ₹33,429.6 crore.

Bhamre said while the rebound could extend in the short term, the preceding corrections were substantial. “Investors are not advised to get carried away with the rebound since it is unsure if the bottom is made,” he said. “There is no big rally in the offing. Unless the tensions flare up again, the markets are expected to see minor declines instead of deeper cuts. The volatility and global risk-off sentiment could keep a lid on the gains.”